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Student Loan Interest Falls Again, Now 3%

Happiness

Student loan interest rates fell in September, from 4.8% to 3.8% as reported here.

But now even more good news, student loans are again seeing another fall in interest from the 5th December. The new rate is 3%. Which should bring some welcome festive cheer to most students and those paying back their loan.

But why the sudden change?

The interest rate is usually set by the Retail Price Index figure for March, this then sets the rate from the September following. Alternatively, if lower, the rate is set from “the highest base rate of a number of major banks plus 1%”.

Usually RPI is lower. But due the current ‘credit crisis’, the Bank of England has been slashing the base rate. It currently stands at 2%. This has led to the interest rate on Student loans being reduced to 3% from the 5th December 2008.

So what does the future hold? Will rates go up or down?

Many predict the base rate will fall even further, in an attempt to get the British economy moving again. Also RPI is currently falling, with the retail sector slashing prices and the lowering of VAT from 17.5% to 15%. So the general out look is quite positive in terms of factors effecting the interest rate.

The difficulty is deciding whether this will last. Economists can not agree on how long the recession will last and I wouldn’t want to hazard a guess. Ultimately a lower interest rate is a good thing, but with jobs becoming scarcer and graduate schemes less likely to be offering as many jobs, 2009 is looking like it may be a difficult year for everyone. Although if you are not earning you will not have to pay it back, but it still gathers interest.

Who knows what will happen, I’m going to go back to tossing coins, seems more predictable!

Martyn

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